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Bank Of England Expected To Keep Interest Rates At Record Low

04/03/2010

By Jason Theodorou

The Bank of England is expected to maintain interest rates at a record low of 0.5%, when it announces its monthly monetary policy decision later today. Interest rates were cut to boost growth, and have been at 0.5% for 11 months.

The Bank's Monetary Policy Committee (MPC) is likely to take a cautious approach after February's news that the UK has emerged from recession, but that the recession was deeper than previously anticipated.

The quantitative easing programme - which saw the Bank pump £200bn into the economy - is expected to remain on hold until new data emerges on the economic situation. A rise in the cost of borrowing could endanger the fragile economic recovery. The Bank has said that the full benefits of quantitative easing will take time to register in the economy.

Figures released last week showed the UK economy grew by 0.3% in the last three months of 2009, a better figure than the 0.1% growth widely predicted. This is, however, no guarantee of long-term economic recovery, and experts believe the UK economy may relapse.

A recent survey by Nationwide showed that consumer confidence is at a two-year high, but consumer spending is down due to the end of stamp duty tax holiday and heavy snow. These factors also led to a fall in house prices at the end of February.

The Bank expects inflation to remain high for several months, but fall below 2% during the second half of 2010. Bank of England governor Mervyn King said that the rise in inflation was 'temporary', and had been triggered by the rise in VAT to 17.5% in January.

Global Insight chief economist Howard Archer said: "We expect the Bank of England to keep interest rates down at 0.5% through 2010... the economy will go through many more twists and turns over the coming months". He added that 'the odds are strongly in favour' of the quantitative easing programme staying on hold for the coming months.

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